What are stablecoins?
The short answer
Stablecoins are tokens designed to hold a steady value, usually one US dollar, so people can use crypto rails without crypto price swings.
Why they exist
Bitcoin and ether move in price constantly. That’s a problem if you just want to pay someone, hold dollars between trades, or send money abroad. A stablecoinStablecoin A token designed to hold a steady value, usually one US dollar. gives you a dollar-like balance that moves over crypto networks.
How they stay at $1
| Model | How it works | Main risk |
|---|---|---|
| Reserve-backed | A company holds cash and short-term government debt worth at least as much as the tokens | The issuer, its banks, and whether the reservesReserves The assets a stablecoin issuer or custodian holds to back what it owes users. are really there |
| Crypto-backed | Users lock up more crypto than the stablecoins they create | Sharp crypto price drops, oracleOracle A service that feeds outside information, like asset prices, into smart contracts. failures |
| Algorithmic | Supply is adjusted by code and incentives | These designs have failed badly in the past |
Most of the stablecoin market is reserve-backed. Issuers publish attestations or reports about what backs the tokens.
When a stablecoin breaks
If people doubt the backing, they rush to redeem and the market price can slip below $1. That’s called a depegDepeg When a stablecoin's market price moves away from the value it's supposed to hold.. Small wobbles of a fraction of a cent are normal. Sustained breaks are serious.
Why they matter in the news
Stablecoin supply is a rough gauge of how much dollar liquidity is sitting in crypto. Lawmakers in many countries are also writing rules for issuers, especially about reserves and disclosures.
Last reviewed Oct 3, 2026. Educational content only, not financial advice.